MF Industry Overview - KPMG

KBuzz
Sector Insights
Issue 21
kpmg.com/in
Amid major political and economic upheaval in India, September has witnessed significant action
by the Government of India (GoI). After a long time, the Government has unveiled a series of
bold policy reforms to revive investor sentiment in the Indian economy. The reforms include the
opening up of the multi-brand retail, broadcast and aviation sectors to foreign investment.
Further, other measures such as diesel price increases, disinvestment in four public sector
undertakings, and a cap on subsidies on LPG to curb the fiscal deficit have been announced. The
reforms come at a time when the government is under the scanner for the coal scam, a faltering
Indian economy, the prevailing policy logjam, and the risk of a credit downgrade to junk status by
international credit-rating agencies.
These reforms and policy initiatives are a step in the right direction for the plunging Indian
economy, where most key economic indicators are currently weak. According to the Central
Statistical Organisations recently released GDP figures, the countrys GDP growth has
languished to 5.5 percent in 1Q13, which is close to its three-year low1. The manufacturing
sector, which continues to bear the heat of high interest rates and low demand, is particularly
responsible for this decline in growth. The Index of Industrial Production (IIP), another key
indicator of industrial activity, also indicates a disappointing industrial performance. IIP growth
remained nearly flat at 0.1 percent in July 2012 as compared to 3.7 percent posted a year ago2.
Inflation provided some respite in July when it decreased to below 7 percent in close to three
years. However, the relief was short-lived, with inflation resurging to 7.6 percent in August3. This
has compelled the RBI to retain key interest rates, while lowering the cash reserve ratio (CRR) by
25bps recently to infuse liquidity within the system4.
Thus, these reforms - likely to be followed by other supporting measures and a fiscal
consolidation plan by the Ministry of Finance in the near future - offer a ray of hope for the
decelerating Indian economy5. Optimism can be drawn mainly from the boost that these reforms
are expected to give to the weak economy by reviving investor confidence, attracting foreign
investment, generating employment opportunities and containing the rising fiscal deficit.
However, the success of these reforms will depend largely on their persistent and effective
implementation and follow up with much broader reforms.
I hope you find this issue of KBuzz engaging and insightful.

Regards,
Rajesh Jain
Head Markets
KPMG in India
1. Indias GDP growth falls to 5.5 percent, The Indian Express, 31 August 2012
2. GoI, Ministry of Statistics and Programme Implementation, Central Statistical Organisation,
http://mospi.nic.in/Mospi_New/upload/iip/IIP_main.htm?status=1&menu_id=89, accessed [21/09/2012]
3. Office of the Economic Advisor, Ministry of Commerce and Industry, http://eaindustry.nic.in/ , accessed [21/09/2012]
4. Oommen A. Ninan, CRR cut to inject Rs.17,000 crore, The Hindu, 17 September 2012
5. Deepshikha Sikarwar, Government readies second wave of reforms; to roll out a slew of nuts & bolts measures shortly, The Economic Times, 17
September 2012
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Indian Economy
Indias Big Bang reforms - the silver lining?
03
Education
A massive leap in higher education
06
Financial Services
Indias mutual fund industry - SEBIs endeavour to
re-energize the industry
10
Government
Indias Human Development Index
14
Healthcare
Outsourcing in healthcare - the success mantra
18
IT-BPO
IT - A strategic driver to facilitate reforms 2.0
21
Indian
Economy
Inflationary
Inflationary Trend
Trend
Source: Office of the Economic Advisor

Against the backdrop of a weak global and domestic economic environment,
the Indian economy is experiencing one of the toughest phases of its growth
journey. The countrys GDP growth plunged to a nine-year low of 5.3 percent
in the fourth quarter of FY12. Further, the recently released GDP growth figure
of 5.5 percent in 1Q13 is not encouraging1.
Rohit Bammi
Head
Financial Risk Management
rohitbammi@kpmg.com
The situation is equally gloomy on the inflation side, which has been primarily
responsible for slow economic activity in the country; it has compelled the
Reserve Bank of India (RBI) to maintain a tight monetary policy for the last two
years. Although headline inflation moderated to nearly a three-year low in July
to 6.87 percent, it rose once more to 7.55 percent in August, dimming all
hopes of monetary easing by the RBI2. Guided by its prime focus to manage
high inflation, the RBI consequently left key interest rates unchanged.
However, it cut the cash reserve ratio (CRR) by 25 bps in September, which is
expected to increase the flow of credit to productive sectors3.
High interest rates, along with long-overdue government action to remove
structural bottlenecks in the economy, have adversely affected industrial
activity, investor sentiment and demand in the Indian economy. The uncertain
global environment has further aggravated the volatile environment by keeping
the Indian Rupee weak.
Amid this vulnerable condition of the Indian economy, economists and
academicians have been suggesting second-generation policy reforms as a
savior to the slowing economy. Although the Government of India (GoI) has
acknowledged the importance of reforms, it has only recently exhibited
political will to push things through and launch a package of big-ticket reforms
to revive the dipping Indian economy.
Back-to-back
announcements hiking the
diesel prices and liberalizing
investments positively
surprised both domestic
and international observers.
The Governments
continued resolve to
implement these and other
tough medicines in the face
of political opposition will
be critical in attracting
incremental investment
that leads to tangible
growth.
Rohit Bammi
Head
Financial Risk Management
KPMG in India
The reform package

In response to the criticism it has been facing of late for scams, policy
paralysis, high inflation, plunging growth, a surging budget deficit and the risk
of a credit downgrade, the GoI has announced a series of bold policy reforms.
These reforms, which include permitting FDI in the multi-brand retail, aviation
and broadcast sector, have put an end to the GoIs long silence on the reform
front4. Further, the GoI has approved disinvestment in four public sector
undertakings (PSUs), has hiked diesel prices significantly, and has tried to cap
subsidies on LPG5.
The Ministry of Finance is also said to be gearing up for supporting policy
measures and a fiscal consolidation plan to build on the momentum set by the
above reforms. These measures include simplifying the raising of overseas
loans, removing impediments to large projects, relaxing the cost limit for
external borrowings to encourage capital flow, introducing measures to ease
foreign flow into stock markets and increase pressure on state-run companies
to deploy their cash6. Further, the government is considering the
establishment of a National Investment Board for the clearance of projects
that involve investments of more than INR 10 billion6. These measures are
expected to help implement the reforms and fast track investment by
addressing the concerns of the investors.
1. GoI, Ministry of Statistics and Programme Implementation, Central Statistical Organisation,

http://mospi.nic.in/Mospi_New/upload/iip/IIP_main.htm?status=1&menu_id=89, accessed [21/09/2012]
2. Office of the Economic Advisor, Ministry of Commerce and Industry, http://eaindustry.nic.in/ , accessed [21/09/2012]
3. RBI monetary policy: CRR cut by 25 bps, repo rate unchanged, The Economic Times, 17 September 2012
4. Mythili Bhusnurmath, An uncommon policy review, The Economic Times, 17 September 2012
5. A K Bhattacharya, A K Bhattacharya: Are these reforms?, Business Standard, 19 September 2012
6. Deepshikha Sikarwar, Government readies second wave of reforms; to roll out a slew of nuts & bolts measures shortly, The Economic Times, 17 September 2012
Inflationary
Inflationary Trend
Trend
Source: Office of the Economic Advisor

These reforms, if they fructify, are expected to give impetus to the Indian
economy by reviving investor sentiment, attracting foreign investment,
generating employment and monitoring the GoIs rising fiscal deficit.
Illustratively, if the stock markets hold up with the announced disinvestment in
four PSUs, the GoI is likely to meet its disinvestment target of INR 300 billion
for FY137. The diesel price hike is also likely to ease pressure on government
finances.
KPMG in Indias point of view
The big bang reforms are a step in the right direction to place the struggling
Indian economy back on track. However, a great deal depends on the GoIs
resolve to not only implement these reforms but also follow them up with
other long-awaited reforms, particularly in the face of political resistance from
opposition parties and its allies.
Further, these reforms may not be the sole solution to Indias dwindling
economic health. For example, while FDI in multi-brand retail is expected to
generate much-needed foreign investment, it will be allowed in only those
cities that have a population in excess of one million. Further, individual states
will have the discretion to implement this reform. Thus, a nationwide impact in
the near term is unlikely. Similarly, while FDI in aviation is a positive move for
private airlines, it is not likely to extend to the state-owned Air India, which has
depended heavily on the GoIs financial support in recent times. Therefore, the
move is not likely to have any noticeable impact on the GoIs finances.
Disinvestment in PSUs and the diesel price increase could paint a more
positive picture around the fiscal deficit number, as the government may be
able to meet its disinvestment target for the year and cut the fuel subsidy as
planned in the Union Budget 201213. However, the GoI is still unlikely to
meet its fiscal deficit target of 5.1 percent of GDP during FY13, as slowing
growth and the high food and fertilizer subsidies are expected to continue
exerting upward pressure on the fiscal deficit8.
While the reforms give hope and clearly lift the despondent mood of the
economy, the immediate financial impact of the GoIs efforts appear to be
limited, considering the mammoth task that lies ahead - saving the once
shining India from fading. The need of the hour is more and broader reforms of
overall subsidy system, pension reforms, tax reforms and others in order to
restore confidence in the Indian economy.
7. Ashok Dasgupta, Disinvestment back on agenda, The Hindu, 14 September 2012

8. GoI, Ministry of Finance, Union Budget 2012-13, http://indiabudget.nic.in/budget.asp, accessed [21/09/2012]
Education
Narayanan Ramaswamy
Head
Education
narayananr@kpmg.com
In the fall of 2011, Stanford Universitys Sebastian Thrun - in collaboration with

Peter Norvig through a start-up called Know Labs (now Udacity) - created history
of sorts when he introduced an online course in artificial intelligence1. What was
remarkable about it was that it was free, had a semi-formality about the course,
had an element of collaboration and being offered by a renowned university . It
was an instant hit and was opted by thousands of students globally - around
160,000 students in 190 countries enrolled in the course1. and this was a major
break through to what was later called Massive, Open, On-line Course or
MOOC.
Overview
Massive open online courses (MOOCs) are free online classes that select elite
institutions across the world have been offering since 2008. Such courses are
revolutionising and reshaping higher education by making it increasingly
democratic and easily accessible to a large number of students globally.
An MOOC connects both instructors and learners across geographies on a
common field of discourse. Such courses generally do not have specific
requirements but challenging timelines in the form of weekly topics or focus
discussions. The rest of the model works simply, with a weekly presentation on
a topic, discussion questions and suggested resources for self-learning. Posting
discussions, reflecting on topical ideas, and sharing resources through a variety
of social media are at the core of the MOOC learning model.
The acceptance and

proliferation of MOOCs
could dramatically improve
if universities and other
traditional institutions
devise a means to
integrate credits from
MOOCs into degree
programs. More than
anywhere else, India
needs this to bridge the
significant gap that exists
in its availability of higherlearning institutes.
Narayanan Ramaswamy
Head
Education
KPMG in India
It is expected that the curricula and structure of this model will evolve through
increased exchange between participants. Currently, most free MOOCs do not
offer college credit to students at affiliated institutions, but they may provide
participants with a certificate of completion. However, this could change with
institutes such as the University of Washington looking to offer credit, as well as
some extra assignments and instructors, for its Coursera classes in exchange
for a fee2. Further, college-enrolled students who pay tuition may qualify for
college credit if they demonstrate complete command over the course content.
Until now, most MOOCs have offered only computer science, mathematics and
engineering courses. In future, though, Coursera plans 100 or more courses in
subjects as diverse as medicine, poetry and world history since 1300.3
The following are some well-known MOOCs that are currently operating in the
education space:4
Academic Room: The Academic Room offers more than 1,000 full-length
lecture videos of courses from Harvard, MIT, Yale, Columbia, Stanford,
Berkley, Duke and Carnegie Mellon. These are accompanied by course
material such as books, journal articles and syllabi listings for self-paced
learning.
Coursera : Funded through venture capital of USD16 million, the company
was founded by computer science professors Andrew Ng and Daphne Koller
from Stanford University; it plans to offer more than 100 courses from an
expanded roster of 16 top-tier universities, including the California Institute
of Technology, Duke University and the University of Virginia.
Khan Academy : Indo-Bangladeshi American educator Salman Khan
established this non-profit educational organization in 2006.
1. Instruction for Masses Knocks Down Campus Walls: New York Times, 4 March , 2012
2. UW to offer fee-based courses through Coursera: Seattle Times, 18 July, 2012
3. Is Coursera the Beginning of the End for Traditional Higher Education? 17 July, 2012
4. www.academicroom.com , www. Courser.org, www.khanacademy.org , www.edx.org, http://mitx.mit.edu
edX and MITx : MIT has launched the not-for-profit MITx in effort bid to
develop a free and open platform for online education. MITx will offer a
portfolio of MIT courses for free to a virtual community of learners around
the world. It will also enhance the educational experience of its oncampus students, offering them online tools that supplement and enrich
their classroom and laboratory experiences, according to the
Universitys website. The inaugural course, 6.002x, was launched in
March 2012. Harvard joined the initiative, which was subsequently
renamed edX, and Berkeley joined in the summer. At present, Harvard
and MIT have both invested USD30 million each, and the Bill and Melinda
Gates Foundation has provided additional support of USD1 million.
Berkeley has also decided to join the edX collaboration. In fact, more than
120 universities from around the world have expressed interest in
collaborating with edX since Harvard and MIT announced its creation in
May. However, edX has been steadfast in adding only one affiliate at a
time to maintain its quality. In addition to providing online courses on the
edX platform, the "X University" Consortium is expected to serve as a
forum through which members can share experiences around online
learning. Many more universities may join this forum in future.5
Indias answer to MOOC

Meanwhile, in India, an interesting trend has been taking shape almost
simultaneously. The Ministry of Human Resource Development (MHRD)
launched the National Mission on Education through ICT (NMEICT) through
Sakshat 6, a dedicated portal designed to provide high-quality content that
virtually anyone can access. The portal aims to bring together the countrys
leading professionals in their respective fields and the best available
knowledge resources on the web in the public domain. Further, it intends to
standardize the curriculum and learning material across the country in line
with the global standards of education.
Benefits and challenges
Flexibility of curriculum; eliminating the need for a brick-and-mortar
classroom; freedom of choice; no tuition fees; low establishment or
infrastructure costs; no language barriers due to the availability of website
translation; networking and exchanging views with a large number of
students and instructors - all these qualities make MOOCs an ideal learning
and teaching platform for students and educators, respectively.
However, critiques have pointed out that the absence of tangible instructors as well as the need for digital literacy and connectivity - may prove to be a
disadvantage in the long run. Moreover, discipline among students and the
likelihood of academic dishonesty - particularly with online examinations due
to a lack of regulation and supervision - are potential roadblocks in the
success of this alternative form of learning.
KPMG in India's point of view
Innovation in MOOCs lies not in its online content delivery format, but the
manner in which it drastically reduces the cost of education and the smart
use of a collaborative model of learning. The model is in stark contrast to the
traditional high-involvement model that has prevailed in India since the
Gurukula age. Yet, while acceptance of a new system may be a challenge, it
could work wonders in remote areas, where learners have limited access to
quality teachers.
5. Berkeley Joins edX Effort to Offer Free Open Courses: The Chronicle, 24 July 2012
6. National Mission on Education through ICT website

The MOOC model should not be perceived as a threat to the traditional form
of university education. In fact, it is likely to enhance the learning
experience. The need and demand for the traditional, instructor- led
education is significant and will likely to remain so.
MOOC could also be a good business model for mass education. From the
economic viability perspective, a small token fee could make is sustainable
in the long term. The cost proposition would certainly be far less than that at
traditional universities, and the model could remain profitable. For example,
even if one in 50 students complete a course with 50,000 student
enrolments, a 1,000 completion certificates would generate INR 1,000,000.
Low establishment costs, improved availability and access for learners,
expanded reach, the potential to standardise curriculum and content low
faculty requirements, and global acceptance - these are many of the
advantages that make the MOOC model ideal for India. It could revolutionise
the countrys education system and give major impetus to employment and
productivity.
Financial
Services
10
Indias mutual fund industry - SEBIs

endeavour to re-energize the industry
Akeel Master
Head
Financial Services
amaster@kpmg.com
The challenges faced by

the sector have led the
Securities and Exchange
Board of India (SEBI) to
adopt certain measures to
re-energize the mutual
fund industry with an
objective to restore
sustainable high growth.
From a single-player monopoly in 1964, the Indian mutual fund industry has
evolved into a high-growth and competitive market on the back of favourable
economic and demographic factors. As of August 2012, 44 asset
management companies (AMCs) were operating in India with assets under
management (AUM) of INR 6.4 trillion. However, after several years of
persistent growth, the industry witnessed consistent declines of 6.3 percent
and 5.1 percent in its AUM during FY11 and FY12, respectively1. One of the
reasons could be the changes in regulatory guidelines-example ban on entry
load, stringent KYC norms, guidelines on transaction charges, tightening
valuation and advertisement norms - which were introduced in a short span of
time thus giving less time to the industry to adjust in the new environment.
Trend in AUM
AUM CAGR FY07-FY11 (%)

+13%
--6%
7.5
5.4
Akeel Master
Head
Financial Services
KPMG in India
12.8%
--5%
7.0
6.6
4.9
1.1%
3.6
-0.8%
FY07
FY08
FY09
FY10
AUM (year end March)
FY11
-5.2% -5.2% -6.0%
FY12
(INR trillion )
-2.3%
-2.3%
Brazil Japan US
UK Europe India China World
Source: Various monthly publications of Association of Mutual Funds of India (AMFI);ICI Factbook 2012
Note: based on GDP and AUM as of December 2011
Further, the penetration of mutual funds in India (as measured by the

AUM/GDP ratio) remains low at 4.7 percent as compared to 77.0 percent in the
US, 41.1 percent in Europe and 33.6 percent in the UK. Mutual funds also
constituted only 3.3 percent of households financial savings in FY10, which
further contracted to -1.2 percent and -1.1 percent in FY11 and FY12,
respectively, due to large redemption and capital losses 2.
AUM to GDP ratio (%, FY11)
AUM by geography as of March 2012
77.0%
Nest 75 cities
5%
Nest 20 cities
7%
41.1% 40.3%
34.0%
33.6%
12.7%
US
Europe Brazil
UK
Japan
4.7%
4.6%
India China
Others cities
3%
Nest 10 cities
14%
World
Top 5 cities
71%
Source: Various monthly publications of Association of Mutual Funds of India (AMFI); ICI Factbook 2012
Note: based on GDP and AUM as of December 2011
1. Various monthly publications of Association of Mutual Funds of India (AMFI)

2. RBI Annual Report FY12
11

Besides low penetration, concentration of mutual funds to a few major cities has
been another concern for the sector. Most AMCs and distributors have limited
focus beyond the top 20 cities, as is evident from the limited distribution
channels and limited investor servicing available beyond these cities. The top five
cities contributed approximately 71.1 percent of the total AUM of the mutual
fund sector, with Mumbai only accounting for about 42.1 percent in FY12. Lack
of incentives for distributors to expand in small cities has resulted in mutual
funds becoming an investment product in the hands of urban Indians3.
Such challenges have led the Securities and Exchange Board of India (SEBI) to
adopt certain measures to re-energize the mutual fund industry with an objective
to restore sustainable high growth for the sector.
To start with, AMCs are allowed to charge an additional total expense ratio (TER)
upto 30 bps, if 30 percent of their net sales or 15 percent of their AUM
(whichever is higher) originates beyond the top 15 cities. If inflow from beyond
the top 15 cities is less than 30 percent of net sales or 15 percent of AUM, the
proportionate amount will be allowed as additional TER. While this step may
reduce investors returns in the short term it may give AMCs more scope to
incentivize distributors to expand their geographical reach. SEBI has also decided
that AMCs should not bear the service tax (12.36 percent) payable on investment
and advisory fees; instead, it can be charged in addition to the TER. This move is
in line with the SEBIs attempt to bring the mutual fund sector at par with other
sectors4.
In short-term, investors returns may be affected due to this move but investors
are bound to gain in the long-term as AUM increases.
In order to help AMCs widen their customer base in tier-IV to tier-VI cities, SEBI
has also relaxed the mandatory requirement of a permanent account number
(PAN) card or bank account for cash investments of up to INR 20,000 per
financial year. Further, the regulators recommendation to include equity mutual
fund schemes under the Rajiv Gandhi Equity Savings Scheme (RGESS) that
offers tax breaks to small investors could help AMCs attract new investors in
capital markets4.
In another step to stimulate the distribution network, SEBI has proposed to
simplify the distributors registration process and widen the distributor by
including postal agents, retired officials from government, banks, retired teachers
and other similar professionals (such as bank correspondents) for the distribution
of simple products. Although this could help AMCs expand their footprint, they
will need to be cautious of the increased risk of mis-selling schemes due to lack
of knowledge on investors part. SEBI has introduced various levels of
certification and registration depending on products and services offered, but a
mechanism to monitor compliance by the individuals must be identified4.
SEBI has also mandated a single expense structure under a single plan to
eliminate differential treatment between retail and institutional investors.
However, to promote direct investment and to be fair to direct investors, a
separate plan for direct investments with a lower expense ratio and a separate
net asset value (NAV) has been proposed. One of the outcomes of this step
could be less distributors commissions as many institutional clients who are
major investors and are well-informed may prefer the direct route. But on the
other hand, retail investors who need help to select the most suitable scheme
and complete requisite paperwork would still invest through a distributor4.
3. AUM by geography, AMFI, March 2012
4. Steps to re-energize Mutual Fund Industry, SEBI. September 2012
12

Low customer awareness and financial literacy are one of the biggest roadblocks
in channelizing household savings into mutual funds. In a bid to enhance
customer awareness, SEBI has mandated AMCs to set aside at least 2 bps of
their daily net assets annually for the investor education campaign. AMCs should
also make disclosures regarding the investor education and awareness initiatives
undertaken5.
To further strengthen the regulatory framework and to make it increasingly
transparent, SEBI has asked AMCs to upload monthly portfolio disclosures and
half-yearly financial results on their websites. It has also mandated AMCs to
report additional annual disclosures such as gross inflow, net inflow, average
AUM, and distributor-wise gross inflow on their websites. The regulator has also
asked its panel to study regulatory provisions in some of the international
jurisdictions (such as the US and the UK) to propose ways to increase inflow to
mutual funds. The report is expected to be released in the next three to four
months5.
While SEBI has announced various measures to increase the penetration and
improve the distribution network, increasingly liberal TER with fungibility was
expected. Currently, equity mutual funds can charge a maximum of 2.5 percent
as TER, of which 1.25 percent may be allocated as fund management
fees/charges and other expenses (such as marketing, distribution and operations)
each. Any expense above 2.5 percent has to be borne by the AMC. Initially, SEBI
proposed the removal of sub-limits on expenses, giving AMCs the freedom to
allocate the 2.5 percent TER the way they wanted to. This could have helped
AMCs to incentivize distributors more effectively and attract them to sell mutual
funds more actively, which was hampered after the ban on entry loads6.
To summarize, enhancing TER (up to 30 bps) and charging service tax separately
are expected to help fund houses improve their reach and energize the
distribution network.
Although investors returns will likely be compromised in the short term,
enhanced presence and a rejuvenated distribution network are likely to be
beneficial for investors in the long term. Relaxing KYC norms for small investors,
widening the distributor network to include postal agents and retired officials,
and recommending the inclusion of equity scheme mutual fund products under
REGSS could help strengthen the last-mile connectivity in mutual fund
distribution.
Through its recent initiatives and announcements, SEBI has given a muchneeded boost to the mutual fund sector but the industry is waiting for a longterm initiative by the regulator that will put this sector amongst the most
preferred instrument of investment.
5. Steps to re-energize Mutual Fund Industry, SEBI. September 2012

6. Press Release, SEBI Board meeting, August 2012
13
Government
14
Navin Agrawal
Partner
Government
navinagrawal@kpmg.com
The contest between Indias GDP and the Human Development Index (HDI)
as the most appropriate measure of the performance of a country has been
longstanding. While GDP is a measure of income, HDI is one that indicates
the wellbeing of citizens. The HDI is a composite statistic used to rank
countries by degree of human development, which is considered
synonymous with standard of living and/or quality of life. The first Human
Development Report introduced a new way of measuring development by
combining indicators of life expectancy, educational attainment and income
into a composite human development index, the HDI. The breakthrough for
the HDI was the creation of a single statistic which was to serve as a frame
of reference for both social and economic development. The HDI sets a
minimum and a maximum for each dimension, called goalposts, and then
shows where each country stands in relation to these goalposts, expressed
as a value between 0 and 11.
With appropriate
commitment from political
leadership for reform
programs across health,
education, social security
and employment, the
government needs to fine
tune its programs while
focusing on inclusive
growth and also
continuously monitor and
evaluate their outcomes.
Navin Agarwal
Partner
Government
KPMG in India
Current scenario
While it has shown considerable potential in its performance on economic
indicators such as GDP, India has yet to improve its position on the HDI to
realize the potential that GDP has to offer. The country remains at the
bottom of the ladder in terms of HDI. According to UN Indias Human
Development Report, India is in the medium human development category
and is ranked 134 among 187 countries2. The following table indicates the
countrys HDI comparing trends from 1980 - present.
Human Development Index

Year
India
Medium human development
South Asia
World
2011
0.547
0.630
0.548
0.682
2010
0.542
0.625
0.545
0.679
2009
0.535
0.618
0.538
0.676
2008
0.527
0.612
0.532
0.674
2007
0.523
0.605
0.527
0.670
2006
0.512
0.595
0.518
0.664
2005
0.504
0.587
0.510
0.660
2000
0.461
0.548
0.468
0.634
1995
0.437
0.517
0.444
0.613
1990
0.410
0.480
0.418
0.594
1985
0.380
0.450
0.389
0.576
1980
0.344
0.420
0.356
0.558
Source: International Human Development Indicators UNDP website, Countries Section
1. Human Development Index Definition, Human Development Reports,UNDP website

2. Why is an emerging economy like India doing so badly on human development index?
The Economic Times , India, Anahita Mukharjee (June 3,2012)
15

Factors behind Indias low FDI 3
Health
The liberalization and globalization policy has been biased towards economic
growth rather than social development. Allocations for public healthcare spending
have increased marginally from 1 percent to just about 1.4 percent of the GDP in
a period of six months till Feb 2010. Consequently, a large proportion of health
expenditure - about 4 per cent of the GDP - is left to be borne out of private
income, which results in inequity.
Education
India has, for long, been cautious in its approach towards spending on education.
The Right to Education Bill was in danger of being shelved on the grounds that it
was too expensive for the government. India's low scores on human
development have much to do with the absence of safety nets for the urban
poor.
The country still accounts for around 30 percent of the worlds illiterate
population, and 70 percent of these people are women.
Urban poverty
There is no urban equivalent of the National Rural Health Mission or the National
Rural Employment Guarantee Scheme.
Environmental performance
The country ranks 125 among 132 countries on Yale University's Environmental
Performance Index, behind the likes of Pakistan, Moldova and Kyrgyzstan.
Next Steps3
Education
The education policy of successive governments should be more inclusive in
nature, with equal emphasis on enrollment as well as improvement in the overall
functioning and quality of schools.
Governments need to strengthen the outreach of their education reforms while
increasing the availability of information to remote corners of the country.
Health
The Indian Government needs to devise effective policies in the public health
sector with cohesive involvement from all relevant stakeholders. These include
hospitals, pharmaceutical companies, health educators, health professionals, and
logistics companies engaged in health-related service delivery. At the same time,
the government needs to lay sufficient emphasis on wider determinants of
healthcare such as food and livelihood security, drinking water, womens literacy,
nutrition and sanitation.
The public health policy should not only focus on the prevention of diseases by
providing clean water and sanitation. It should also stress on fighting disease by
administering antibiotics, which can be facilitated through the appropriate training
of public health specialists and the development of health facilities at all levels.
3. Emerging Issues and Policy Perspectives

Indian Institute for Human Development Website, World Bank Consultation Report, Feb,2010
16
Employment and skills

To address the issue of growing unemployment among the countrys youth, the
government has to focus on bridging the gap in terms of labor and income,
improve working conditions, and introduce policies that protect the rights of the
labour class.
The substantive unorganised sector should be strengthened and sustained with
investment for consistent growth.
Social protection
Migrant workers, women and children, the elderly, physically challenged
individuals and tribal communities are among the marginalised sections of
society. They need the allegiance of government reforms, laws, rights and
policies for increased human development. Thus, it is imperative that their socialprotection needs are identified, addressed and regularly monitored.
The effective participation of the people is a prerequisite to facilitating
accountability in social transfers. Therefore, the need of the hour is to tackle
issues of economic and social equity, gender bias, and illiteracy at the grassroots
level.
In addition, the Indian Government should design a framework to monitor and
evaluate the performance of reform programs and conduct impact assessments
of these programs to facilitate the efficient utilization of tax payers money.
17
Healthcare
18
Amit Mookim
Head
Healthcare
amookim@kpmg.com
Introduction
Over the years, outsourcing has emerged as a winning business model for
Indian hospitals. Many have outsourced noncore hospital jobs to the
specialized sector. The objective - to focus on the quality of healthcare
delivery rather than on other allied time-consuming yet essential initiatives.
Outsourcing relieves the burden of administration, procurement, accounting,
logistics and other responsibilities on management, thus generating savings
of indirect costs related to such functions.
Another point of view, which applies in the case of outsourcing diagnostic or
super-specialized services, is to leverage the knowledge and infrastructure of
an external party for enhanced cost efficiency and quality in healthcare. 1
Outsourcing is not a recent trend. Wockhardt Hospital in Mumbai outsourced
its payroll activity to Mafoi, a leader in handling HR solutions, for a range of
industries way back in October 2007. Care Hospital in Hyderabad followed
suit and emulated the concept2.
Further, outsourcing is not restricted to HR payroll and soft skills. Hospitals
today outsource services such as billing, revenue cycle management (RCM)
for credit billing, back-office work, medical records storage (both electronic
and hard copy), patient record transcription or medical transcription, and
diagnostic facilities1.
Outsourcing specialized services
Outsourcing has been particularly prominent in the areas of radiology and
imaging, nuclear medicine, oncology, dental services and ophthalmology
recently. For instance, Fortis Hospital, Sir Gangaram Hospital and Dr. BL
Kapoor Hospital have all outsourced their radio-diagnosis facilities2.
The rising cost of high-technology equipment is the primary driver of this
trend. With technology evolving rapidly, hospitals are finding it difficult to
invest significant capital in equipment so frequently. Thus, outsourcing
functions that entail the use of complex and expensive equipment becomes a
viable solution, allowing hospital owners to lower risk in terms of technology
evaluation and other factors such as potential returns.
Cath (catheterization) lab outsourcing is another trend gaining ground.
Outsourcing the lease of cardiac cath lab equipment and the provision of cath
lab staff services, along with lab maintenance, is a rapidly evolving trend in
many countries, including India. Medical equipment manufacturers have a
wide presence in this niche space. In a market where the majority of patients
are opting for interventional cardiology procedures over conventional
surgeries, the demand for such services is only expected to increase.
Conclusion
Outsourcing in healthcare is currently neither homogeneous nor organized.
While some early players are now expanding beyond the initial centers, the
capital-intensive nature of the business does not make it rapidly scalable.
1. KPMG in India Analysis

2. Outsourcing is in Express Pharma October 2007
19

Further, outsourcing services is an option only for large hospitals with worthy
substantial revenue base. For small establishments, such investments may
not be as feasible. The viability of an outsourcing arrangement depends to a
great extent on the revenue-sharing pattern and the understanding between
hospitals and vendors.
In the case of noncore activities, outsourcing is fairly straight-forward, as the
vendor belongs to a specific industry and errors do not have serious
implications. However, when diagnostic/ therapeutic services are outsourced,
the implications are far more serious. In such cases, the credibility of the
service provider, domain knowledge and quality become critical.
Various medical device and medical equipment companies have expressed
interest in becoming outsourcing partners to hospital chains. Due Diligence is
an imperative part of this decision along with establishing commercial
viability.
20
IT - BPO
21
IT - a strategic driver to facilitate reforms 2.0

A credit rating downgrade, corruption scandals, the poor performance of
select sectors, rising inflation and slowing growth - such factors combined
generated the urgent need for corrective action. This action needed to go
beyond incremental changes to existing policies; it needed to entail the
ushering in of far-reaching structural reforms to help bolster economic
growth in the country.
Pradeep Udhas
Head
IT-BPO
pudhas@kpmg.com
In this context, on 14 September 2012, the Government of India

announced reforms in a few key sectors, which appear positive and have
created a buzz among investors. The government approved the proposal
to allow foreign airlines to acquire up to 49 percent1 in airline companies
and permitted foreign direct investment (FDI) of up to 49 percent1 in
power exchanges. Further, it has raised the FDI limit in various services of
the broadcast sector from 49 percent to 74 percent2, and most
importantly, it has allowed 51 percent1 FDI in multi-brand retail and has
also resolved a long-running dispute on this subject.
The Governments recent

move to allow FDI in key
sectors is a welcome step.
Firms looking to get an
advantage in these sectors
need to leverage IT as a
critical success factor. At
the same time, IT vendors
also need to come up with
a strategy to act as
transformational partners
to firms in these sectors.
Pradeep Udhas
Head
IT-BPO
KPMG in India
Role of IT in reforms 2.0
Retail
Reform
Impact on IT
Aviation
Power
Broadcast
Allowed FDI of 51
percent in multi-brand
retail and 100 percent
in single brand retail.
Allowed FDI of 49
percent by foreign
airlines.
Allowed FDI of 49
percent in power
exchanges.
Allowed FDI of up to
74 percent in various
broadcast services.
IT investments in
overhauling back-end
infrastructure and
cold chains.
Modernization of IT
systems in airlines to
match the global
standards.
Wider deployment of
smart grids and other
smart IT
infrastructure.
Digitisation of the
existing network and
upgrade of back-end
systems.
Supply chain
management, CRM,
point of sale and
multi-channel
integration.
Reservation and
ticketing systems,
airport operation
systems, back office
integration.
Advanced metering,
demand side
management
solutions, smart
metering and smart
grids.
Broadcast
management systems,
content management
systems, broadcast
managed services.
IT Solutions
Source: KPMG in India Analysis; UPA unleashes big-ticket economic reforms: India Inc cheers FDI in retail, aviation and power exchanges, The Economic Times, Sep
15, 2012; FDI in broadcast to spur digitization, Business Standard, Sep 15, 2012
1. UPA unleashes big-ticket economic reforms: India Inc cheers FDI in retail, aviation and power exchanges, The Economic Times, Sep 15, 2012,
2. FDI in broadcast to spur digitization, Business Standard, Sep 15, 2012
22

FDI in Retail
For several struggling retail companies in India, the governments decision
on allowing FDI in the sector has renewed hope within the sector.
However, the policy comes with several strings attached - FDI of 51
percent3 has been allowed in cities with populations of over one million,
and states can choose not to allow foreign players. Another caveat
attached to this policy is that at least 30 percent3 of the goods should be
sourced from local suppliers. The policy also mandates at least 50
percent3 of the minimum investment amount of USD100 million must be
invested in back-end operations; therefore, multi-channel retailing may
attract significant IT investment.
Considering the sub-optimal state of back-end infrastructure in India including cold chain storage, supply chain management and inventory
management - this measure could give a much needed boost to the
sector that faced a wastage of around 7 percent of total produce, or nearly
USD 10 billion4 (INR 50,000 crore), in 2010115.
This may lead to IT diffusion through back-end infrastructure upgrades,
the revamp of supply chains, and initiatives to augment the front-end
customer experience. This is expected to significantly increase demand
for solutions such as supply chain management (SCM), customer
relationship management (CRM), and analytics.
FDI in Aviation
Most airlines in India are currently running under losses and are in a dire
need for capital investment to write off accumulated losses. A price war
due to intensifying competition and rising fuel and wage costs are further
adding to the plight of this sector. Until now, FDI in aviation was allowed
only from non-airline investors. The government has now removed this
restriction and is allowing foreign airlines to invest in the sector. While
many industry veterans believe that the sector is not in the shape to
attract foreign investors, as most companies struggle with finances,
growing passenger traffic does seem to create a case for India.
The initiative is seemingly positive and may lead to a surge in investments
in IT solutions such as ERP systems, on-premise solutions for
manufacturing, supply chain, financials, as well as BPO based customer
service operations for airlines.
FDI in Power
The government has permitted FDI of up to 49 percent in power
exchanges with a limit of 26 percent on direct investment and 23 percent
on institutional investment. The move is expected to inject more capital
into the sector, make the market increasingly competitive and encourage
global best practices. However, as in the aviation sector, many feel that
the countrys merchant power market is not mature enough to attract
many foreign players. In India, merely 22.5 percent6 of the total electricity
demand is traded in exchanges, and customers appear only in times of a
supply shortage.
3.
4.
5.
6.
FDI in retail and aviation sectors set to become a reality now, The Economic Times, Sep 21, 2012
Exchange rate used: 1 USD = 50 INR
Farm produce waste pegged at 7%, or Rs 50k cr, The Times of India, Sep 2, 2011
FDI in Power Exchanges: Market not mature to attract foreign players, says industry, The Hindu Business Line, Sep 14, 2012
23

Nonetheless, the market is still amid transition and is yet to rise to the level of
developed markets. The FDI move can be expected to generate muchneeded capital funds to upgrade infrastructure, improve operating
performance and address the capacity constraints of utility companies to
unlock the growth potential of the sector.
As foreign investments start flowing in, Indias power sector is likely to
witness the modernization of utility companies as well as infrastructure
upgrades. There lies a window of opportunity for IT players in the utilities
segment for the sale of solutions such as smart metering, smart grids and
gas transportation management systems.
FDI in Broadcasting
The Government has also raised the FDI limit to 74 percent in broadcast
services such as direct-to-home (DTH), head-end in the sky (HITS) and cable
television.7 The only exceptions are television news channels and FM radio,
where the existing limit of 26 percent will continue. Before the amendment,
49 percent of foreign investment was allowed in cable TV and DTH and 74
percent in HITS.7 While the recent measure is positive for the industry, the
cross-holding restriction under which a broadcast company is not allowed to
have more than a stake of 20 percent in broadcast service providers in India
may reduce the positive impact to some extent.7
The move is also expected to spur the digitisation of the existing network,
increase the deployment of set-top-boxes and overhaul back-end systems,
which requires investments. This will likely increase the demand for IT
solutions such as digital media platforms, data standardization platforms,
digital rights management and content rating frameworks.
IT as an Enabler for Reforms
Economic and policy reforms in these sectors is expected to see a significant
amount of infrastructure overhauling which would be enabled through IT. IT is
expected to act as a strategic lever to bring in efficiencies and drive the next
phase of growth in these sectors. Firms in these sectors will have to form a
comprehensive IT strategy to put all the pieces of information together and
get a comprehensive view of the entire organization. Some of the key IT-BPO
solutions and services for these sectors would be:
Retail: Supplier management, product information management, supplier
portals, reverse logistics, procurement, fulfillment, analytics, forecasting,
inventory management, RFID, logistics, e-Commerce, point of sale, multichannel integration, promotions management, campaign management,
loyalty management, CRM, master data management, retail analytics
Aviation: BPO services, E-commerce portals, reservation and ticketing
systems, airport operations systems, loyalty programme systems, fares,
pricing and GDS (global distribution systems), commercial systems,
revenue accounting systems, corporate and consumer travel solutions,
back office integration solutions
Broadcast: Broadcast management systems and syndication systems,
rights and contract management systems, content management systems
and editorial collaboration platform, broadcast managed services and media
advisory services.
To support growth in these sectors, investments would be required to build a
robust and futuristic IT infrastructure which can be benchmarked against
global standards.
7. FDI in broadcast to spur digitization, Business Standard, Sep 15, 2012
24

KPMG in India's point of view
As fears of a slowdown loom large, undertaking major reforms is the need of
the hour. In such a situation, the government has rightly taken a bold step
forward despite opposition from other political parties and has opened up
select sectors to foreign investment. The governments efforts are expected
to boost investor confidence and have created ripples across India Inc., with
stocks of various industries rising.
The move is also expected to give major impetus to Asias third-largest
economy, which has been labelled as becoming stagnated. The IT sector,
which acts as a horizontal function for all the other sectors, will likely be a
critical enabler for the modernization of the sectors that have been opened.
The impact of this move on IT industry could be multi-fold. Sectors such as
retail, aviation, power and broadcast could grow in size. With an overall
increase in the size of the pie, IT vendors in these sectors would, thus, have
the opportunity to scale up their operations.
Moreover, with the entry of foreign players, these sectors are expected to
adopt global practices and move toward upgrading existing shambolic
infrastructure and, therefore, generate the inflow of IT investments.
Domestic and MNC IT firms need to seize the moment and introduce a
bouquet of offerings to help firms in these sectors.
25
This document has been compiled by the Research, Analytics, and

Knowledge (RAK) team at KPMG in India.
kpmg.com/in
The information contained herein is of a general nature and is not intended to address the circumstances
of any particular individual or entity. Although we endeavor to provide accurate and timely information,
there can be no guarantee that such information is accurate as of the date it is received or that it will
continue to be accurate in the future. No one should act on such information without appropriate
professional advice after a thorough examination of the particular situation.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative (KPMG International), a
Swiss entity. All rights reserved.
The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of
KPMG International.

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I hope you find this issue of KBuzz engaging and insightful.

Source: Office of the Economic Advisor

Indias Big Bang reforms - the silver lining?

The reform package

1. GoI, Ministry of Statistics and Programme Implementation, Central Statistical Organisation,

Source: Office of the Economic Advisor

Indias Big Bang reforms - the silver lining?

7. Ashok Dasgupta, Disinvestment back on agenda, The Hindu, 14 September 2012

A massive leap in higher education

In the fall of 2011, Stanford Universitys Sebastian Thrun - in collaboration with

The acceptance and

A massive leap in higher education

Indias answer to MOOC

A massive leap in higher education

Indias mutual fund industry - SEBIs

The challenges faced by

AUM CAGR FY07-FY11 (%)

AUM (year end March)

-5.2% -5.2% -6.0%

UK Europe India China World

Further, the penetration of mutual funds in India (as measured by the

AUM by geography as of March 2012

1. Various monthly publications of Association of Mutual Funds of India (AMFI)

Indias mutual fund industry - SEBIs

Indias mutual fund industry - SEBIs

5. Steps to re-energize Mutual Fund Industry, SEBI. September 2012

Indias Human Development Index

Human Development Index

Medium human development

Source: International Human Development Indicators UNDP website, Countries Section

1. Human Development Index Definition, Human Development Reports,UNDP website

Indias Human Development Index

3. Emerging Issues and Policy Perspectives

Indias Human Development Index

Employment and skills

Outsourcing in healthcare - the success mantra

1. KPMG in India Analysis

Outsourcing in healthcare - the success mantra

IT - a strategic driver to facilitate reforms 2.0

In this context, on 14 September 2012, the Government of India

The Governments recent

Role of IT in reforms 2.0

IT - a strategic driver to facilitate reforms 2.0

IT - a strategic driver to facilitate reforms 2.0

IT - a strategic driver to facilitate reforms 2.0

This document has been compiled by the Research, Analytics, and

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